Tuesday, February 17, 2009

This silly question has been nagging me: - If we need more and more value, and growth in activities reducing pollution, but also measured in some kind of currency2.0 today, then how that currency might relate to inflation? Because, obviously, it needs to be inflated a lot and fast - pollution cleaning can't wait.

Now, conventional money - the paper money - becomes worthless when inflated too fast. When there is way too much of it, the incentive is lost to back it up with increase in real products or services and they become next to worthless.

So to make a value system work for the environment and to acknowledge rapid improvement in that area, it may not be based on what can potentially be worthless - wealth that is only valuable if scarce. It should be based on what is also valuable when in abundance.

Whether or not it is to be based on what should be freely available, like clean air, or something that needs to be paid for to remove - like CO2 in the air, that's another question.

Tuesday, February 10, 2009

Ok, I hear you. You say currency is about competition too, not just what is scarce today. It is who can own more of that scarce stuff.

So here is another thought. And don't hold against me that I'm an engineer who only accomplished cursory reading of a couple of books on finance and the market. For a while Samuelson's hefty tome of Economics was traveling with me even on summer holidays. That's how highly esteemed those thoughts were.

What follows, however, are the words of one who also tries to follow things with open eyes and verify things empirically.

Because you will be hard pressed to find stuff more empirical these days, than over-polluted air and over-consumed earth. You can almost touch those stuff.

So if currency is about competition too, than we would all want to see folks competing in who can MAKE MORE clean air, clean water, etc. Now, one can do that by bidding to save them for tomorrow, not overuse them and if possible clean them.

And at heart of it, clearly, that is the positive idea behind the carbon credit system. More recently, that's the idea behind 'cap and auction', instead of 'cap and trade'.

But to trade or bid for who can pollute air and who can't - like it is inevitably done with the currency called carbon credit - makes no difference in one important aspect. It already makes fresh air for people scarce here, and in abundance there. And you can bet that this makes a lot of folks happy and comfortable here, and a lot of folks very uncomfortable there. All in the while the ecosystem ties their interest strongly together.

They should out-compete each other to make more fresh air overall. We should have an unprecedented and exponential growth in goodeys. Surely, nature is not a zero sum game that should or can be controlled with artificial and forced scarcity. Nature is an open sum game not amenable to our will: it controls us.

HYPER INFLATION ~of~ GOODEYS

Let's look at it this way: - What kind of currency is that we should be interested in inflating to the max? Money has a high price when it is scarce. And inflated money becomes worthless when available in abundance for everyone. It is called super or hyper inflation and it is the stuff of nightmares.

When your entire salary can worth just an egg in a matter of hours, no one cares about money anymore. Everyone barters. Stuff that is scarce for someone exchanges hands for stuff that is scarce for someone else. People throw away money - it's free then. And it also is worthless.

Yet it is exactly valuing more fresh air AS WELL AS the hyper inflation of fresh air that we are interested in right now. We are interested in not making fresh air worthless, we want that to be available to everyone and in abundance.

And so the exchanges of wealth - the free currency market - to make the value system work towards that goal should not aimed at what is worthless, it should be aimed at what is free.

The notion of money is strongly tied to the notion of currency. We value what is scarce, and we value today what is scarce today. We value what is hip, what is cool, what is funny -- pretty much what makes us healthy and happy.

So if real, natural, and free market is based on scarce resources (as we discussed this previously) and what really matters to us right now, then currency should be tied to good air, good water, good forest, good reef - stuff that is scarce, not stuff that is in abundance.

In short, currency shouldn't be money, it should be all the natural goodies of earth that are currently at risk to be in very short supply. Then, may be not 'open money' is the best way to call it. Open goodie perhaps? You decide.

But if it to become a household name frequent use will erode it into one shortened label to be sure. In fact, you could in your mind shorten open money in just one word right now. Imagine making this a household name: goodey to give us some reminder of what it meant to replace.

For eons, folks thought that resources were in abundance. The idea that stuff like good air and fresh water and good river for fish and irrigation are scarce and we can still live in comfort would have been unthinkable. That general sense of fairness went to the heart of markets that sprung up everywhere.

Now let's have a second look. The lifeblood of those markets (currency) was based on scarcity: - So among folks and even nations who possessed a lot of them - goats, grains or gold - were considered wealthy. (And precious metal like gold was clearly a scarce resource.)

Again, the notion of basing the exchange of wealth (market) on scarcity of good air would have been unthinkable when it was in unlimited supply. Partly because no one would have felt comfortable if fresh air was limited and partly because everyone was striving to have good air and water in abundance. If anything, there was always another land, another forest, another river to go to. Or another nation to plunder for it.

But over time, natural scarcity as the basis of exchange of wealth gave way to something else. Exchange of gold became exchange of paper - printed money, and IOY slips and slips of future promises by wealthy folks. But there is a twist. Because folks only value exchange if what they get is scarce for them. So money became a commodity in itself, and folks only valued it if it was scarce.

Today, what really is scarce is the good tree that money can be printed on.

Today what really is scarce is good air and good water. That scarcity is now the fact of the day. And because without those natural resources no one feels comfortable in a really free market any real and natural exchange system of wealth should be based on those resources.

It follows that to base our new money on carbon is the silliest notion possible. Carbon is in utmost abundance on earth. We ourselves are made of it. Carbon credit and carbon money will only replicate the same problem we now have with printed money. Understand, that in order for the issuer to make that kind of money valuable, they need to put a price on them and have the power to make it scarce. In other words carbon credit markets may only operate if artificial scarcity can be imposed upon them.

And artificial scarcity implies the power of controlled reduction.

Well, it is not carbon that is scarce - it is good water, good air, good forest, good reef that is scarce. Stuff that is not yet polluted that is what is scarce. And a natural, fair and free exchange system should probably be based on what is naturally scarce. Indeed, that implies no more artificial scarcity in the wealth exchange systems either. At least not until we clean up our stuff and feel comfortable again about the natural resources that makes us all healthy.

But that time is well in the future. Some say the horizon is a thousand years or more. This I cannot tell, and my guess is - no one can. What I can tell though is that there is a new exchange system in the wing.

It is called open wealth acknowledgment, and the best example I can find so far is open money. Folks, we should adopt this between communities around the globe, the more and the freer the merrier. And what it might need to be based on for the environment are fresh water, unpolluted air, healthy reefs, good rain-forest, sustainable plantation forest and the like.

An open exchange market based on the amount of time spent, but also moderated by the measure of good you did to the environment by it. The value would be a relative measure compared to a similar action e.g.: saving water in your home in Melbourne.

Stuff that we need, not stuff that we are made of. Like carbon. The very notion of carbon credit closes the door on you. It says you live on borrowed time.

Well I don't know about you. If that's the story of money, I need a little more positive message.